Putting the Retail Back into Retail Banking

Going Beyond Digital Transformation

September 24, 2018

By John Bajorek & Leah Cotterman

If financial institutions and their customers looked at news headlines as prescriptive, life would be scary— especially for retail banks— those whose business models involve a network of traditional branches. On one side of the coin, headlines abound with stories of attempts at saving the branch experience, even reviving its glories. But these efforts have proven futile in suppressing closure rates in today’s digital age. In fact, banks are cutting down on branches at the fastest rate on record.1

The problem is likely that at their core, these “innovations” have amounted mostly to interior design upgrades and inauthentic attempts at neighborliness. Under many circumstances, retail banks are still expecting consumers’ extra effort to drive to the branch, without any of the “extra special” in the experience—a contrast to the way innumerable other consumer experiences have evolved. With such obvious room for advancement, it’s no wonder direct banks score 49 points higher in overall satisfaction vs. traditional retail banks.2

Well, flip that coin over and we see a reason for branches to exist even in the digital era. In fact, the data points to brick-and-mortar presence as a strategic imperative for banks. Retail banks can maintain perception of ubiquity, especially with branches on particular corners in town. The branch is necessary, as 60 percent of Americans would still rather open a new checking account in person3 than through any alternative. If all branches close, we’re giving up a critical touchpoint of that first human interaction.

Despite the climbing branch bank death toll, there’s proof out there that brick-and-mortar presence, existing human-to-human interaction, remain critically important in the distinctive and sustainable banking equation. When it comes to banking, consumers still crave real-life experience, find value in expert-led guidance and seek ease of access at branches. So with nearly 80,000 branches throughout the U.S. filled with financially-trained bankers, where’s the disconnect?

The Case for Change

What is the answer? How about needs-based design? What if retail banks AND direct banks—analyzed what consumers really want from more than a usability or single touchpoint optimization perspective? If money is really about life—a series of memorable and interconnected experiences—maybe so too is banking.

Taking this perspective, retail banks still hold a significant competitive advantage through their branch presence: The opportunity to develop long-term relationships and loyalty. While the above-50 crowd nods affirmingly, these concepts are seemingly elusive for generations trailing them. Though digital-first consumers may love the easy access and culturally supportive experience of direct banking, they admit total well-being depends on positive physical experiences as well. Brick-and-mortar offers space for authentic human interaction that can never be replaced by a handheld device. Maybe digital transformation isn’t the enemy, but the perfect excuse to make the branch experience add more value.

Money for Americans is stressful, emotional, and confusing.4 Outside of comforting advertising messages, banks are missing out on this one, folks. Walk into a branch, and what about the experience contributes to relieving stress more than a trip to the BMV? Digital experiences are no better: What about viewing balances, paying bills, or quippy money-life blogs is relatable, empathetic, or human? When a life fiasco strikes, can a mobile device be as helpful as a financial Sherpa who has been there, too? One can dream.

Here’s the deal: There’s a pretty huge disrupter sitting on the horizon—Amazon. It’s no wonder Amazon is fueling up for their next industry entry and aiming squarely at banking—with plans for everything from payment by voice to robo-wealth management. And crazy as it sounds, the market appears more than ready, as 55% of Amazon Prime members have already said they would be open to an Amazon bank account.5

What do Amazon’s plans spell for retail banks or the banking sector at large? And what consumer needs will be answered best by either of these formats once this giant gets involved?

Lessons for Larger Retail

Contrary to how the press portrays the current state of retail, it’s not all doom and gloom. Leading edge banks see it as innovation inspiration to successfully address shifting consumer priorities and build deeper connections. As Amazon gears up to invade financial services, retail banks must leverage their physical presence now before their time is up. Maybe thinking like a retailer is the best form of defense.

Like many other digital pure-play-to-omnichannel brand transitions in retail, some direct banks are opening retail doors by creating a physical banking experience that brings their brand to life in a full-sensory insights-fueled way.

What if we applied winning strategies from the retail playbook to reimagine the banking experience of the future?

What If Banks Acted Like Retailers?

Lululemon, a lifestyle brand

Guerilla marketing tactics, in-store yoga classes and manifesto-wielding shopping totes come together for the ultimate in lifestyle brands. Lululemon’s $98 yoga pants bring with them a community of like-minded, inspired and passionate “luluheads” who not only have their own language but yearn to live well and look good doing it.

Starbucks Reserve, an authentic coffee experience

Starbucks opened their first Roastery & Tasting Room to bring their passion for coffee to life in an immersive and dramatic experience. Here you can try exclusive small-batch coffees, watch coffee being roasted and see the burlap sacks it comes in. Tours & tastings are available or saddle up to the Experience Bar to have coffee served your way.

Sephora Accelerate, a focus on consumers’ aspirations

This beauty retailer’s venture is dedicated to building a community of innovative female founders in beauty. With business-oriented boot-camps, one-on-one mentoring programs, support with funding or grants, and the opportunity for entrepreneurs to present to industry influencers, the program provides tangible support to help people realize their dreams.

The fact is, if a bank can do the physical experience well, and nail digital, its traditional banking concept may very well survive, or even flourish in the next decade.

Call to Action

It’s the era of disruption and modern banking trends spell a mixed future for both retail and direct banks unless new ways of thinking can break the monotony or myopic view. The path for continued success for direct banks will depend on willingness to find what customers need beyond convenience-based services. Meanwhile, the local branch must advance to deliver on expectations of convenience and control—developing apps, creating simplicity of access, and dialing up human connections in a digitally connected world.

The obvious message for financial institutions? Don’t overlook needs and experience in trying to make this a generational fight. Relevance in the banking industry will depend on finding that perfect hybrid that appeals to the money-smart, socio-cultural consumer without discounting the value of in-person, trustworthy relationships with their local bank.

Make real matter. Stop treating branches as just another point of distribution and see it as the relationship building touchpoint that has the opportunity to touch people’s lives in real life.

Don’t stop short. Feed the need for consumer control not just when and where it’s most convenient for the bank. Explore new avenues for those seeking ways to optimize every element of their experience. Then make it fun.

Get off the pot. Perfect is the enemy of good. Taking an iterative, human-centered approach to innovation, treating branches as sites for R&D will help propel toward an omnichannel future and bring the customer along in the process.